Journal of Financial Intermediation Vol. 3 No. 2 1994

Financing Losers in Competitive Markets

Andrew B. Abel^1,2; George J. Mailath^1,2

¹ University of the Arts · ² University of Pennsylvania

Abstract

Projects with negative expected value cannot obtain financing in competitive capital markets if all potential investors are risk neutral and have identical beliefs about the distribution of the project′s net revenue. We present a series of examples with heterogeneous beliefs in which it is possible for a project to obtain financing even though all investors in the project believe, conditional on the project being undertaken, that the project has negative expected value. An important feature of the examples is that the differences in beliefs are due only to differences in information, and are not simply arbitrary unexplained differences in opinions. Journal of Economic Literature Classification Numbers:D8, G1.

DOI

10.1006/jfin.1994.1001

Volume

3

Issue

2

Pages

139-165

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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